Risk-takers vs. Risk-Shapers: Achieving Paralllel Innovation in Profitless Times

I came across a good paper published by Oliver Wyman called The Discipline of Business Model Innovation. One of the co-authors is Adrian Slywotzky, author of several popular business books including The Profit Zone. He's spent a career helping companies work with the strategy of risk taking.

The paper offers a fresh perspective on the 'how' of business model innovation and outlines why it's easier to trace large shifts in the market value of companies by the business model decisions they've made rather than the unique product inventions they brought to bear.

There certainly has been a shift in the past several years of companies putting more energy into their overall business design. Yet unlike the product innovation cycle, where clear processes are present, the systems for the business design innovation cycle are immature. This subject has been written about extensively but bottom line, it's hard to develop a comprehensive perspective of an entire system prior to embarking on an innovative re-design and even harder to implement the re-design back into the existing system.

Some past and present examples from the paper:

"It’s hard to believe that Microsoft and Apple had roughly the same market capitalization as late as 1990. Apple had the better performing operating system, but its business design logic called for it to use its advantage to sell a few more Apples rather than working to create an OS standard. Microsoft used a very different business design with an operating system that it had licensed, not invented..We all know the outcome."

"Sun Microsystems obstinately clung to an outdated business design long after it had ceased to be advantageous. Sun has now embarked on a radically different business design of subscription-based computing; the jury is out on whether management has acted too late."

The authors continue with key elements of 'business design' - a term they prefer over business model innovation - and I'm inclined to agree. "We use the concept “Business Design” because it helps focus the user on the “Design” of his or her business first and foremost. Business Design is a set of structural business choices that together deliver high utility to the customer and high value to the shareholder."

Most of the questions presented in their business design process are straight-forward and not surprising, for instance: What are the greatest growth opportunities that fall within your current customer channel? What profit model does your business design utilize to capture value? How do you protect sustainable cash flow? Yet one in particular represents the greatest challenge facing existing companies today: How can you rapidly test, learn and adjust for improved profitability of a new business design while at the same time manage the current operating model? In other words, how can you shape risk instead of take risk?

That's the value of the Business Innovation Factory - a a neutral, independent platform for testing new business designs safely and manageably in a real-world environment. Through real-life experimentation, companies can imagine, touch, feel and experience a new business model without affecting their current operating model. Making this tangible in a safe environment gives everyone a sense for what changes in training, technology, marketing, network, or work process will really work, before investing in the build-out. Ultimately, the end goal is to help organizations use the information to introduce changes to their overall business design on a grand scale.

One final note from the paper. The authors found over 40 different profit models at use in business today. They attribute this to the newfound power of the customer. "As a result, many business designs now capture the customer relationship at one point in the business design and capture profit at another point - preferably at a time when the customer isn't as price sensitive or is in a weaker negotiating position." I think this is really intriguing. I'm curious if more companies than not view their customer relationship life cycle through such a lens. It certainly has implications for the business design innovation cycle and I intend to dig in further.

Get the paper The Discipline of Business Model Innovation

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Posted December 18, 2007 02:00 PM by Chris Flanagan | Permalink